My previous blog posts (May 29th and August 3rd) about the home inspection contingency and how it is constructed in the Wisconsin WB-11 Residential Offer to Purchase continue to receive beaucoup views, averaging about 7 per day for the last 6 months. Apparently a large number of people are doing online searches looking for information on that very subject, and in light of that fact, I am presenting the information once again using a different format – a (fictionalized) case study.
The facts of the case: Seller “S” has accepted an offer written on the WB-11 Residential Offer to Purchase by buyer “B” for a single family home constructed in 1985. The home is in a rural area and has a private well and septic system. S had noted on the Real Estate Condition Report (which had been received by the buyer and attached to the offer as an addendum) that the basement wall has a crack in it that developed shortly after construction and has remained stable over the years. The home inspection contingency provision of this contract provides that:
· The offer is contingent upon a home inspection by a Wisconsin registered home inspector which discloses no defects as defined within the contract language.
· The buyer has 30 days from acceptance to complete the inspection and deliver a notice of defects and a copy of the inspection to the seller or the contingency will automatically be deemed satisfied.
· Buyer bears the costs of the inspection and any follow-up inspections.
· Seller has the right to cure.
(Contract provisions do not specifically address testing, therefore, there will be no radon, asbestos, mold, water quality, well capacity, nor any other type of tests performed. The home inspection contingency does not automatically allow for well and septic inspections – these also must be specifically addressed.)
B immediately retains a home inspector and receives the inspector’s report within 10 days. The home inspector notes that:
· The asphalt shingle roof is the original roof, near the end of its life-span, but appears to remain weather-tight.
· Loose kitchen cabinet hardware.
· No GFCI (ground fault circuit interrupter) devices in the garage (required since 1978) or the unfinished basement (required since 1990.) The GFI outlet in the master bath is not working properly.
· Deck railing needs repair.
· Several smoke detectors have no or dead batteries.
· Crack in basement foundation wall, but it appears stable. Recommends qualified expert follow-up inspection.
B contacts his agent, “R”, and states that he wants the seller to pay for a new roof, fix the cabinet hardware, replace the malfunctioning GFI outlet and install GFCI devices in the garage and basement, fix the deck railing, and provide proof that the foundation wall is stable, or fix it if it is not – in short, everything on the inspector’s list except for the smoke detector batteries, or he is walking. R, to her credit, says “Not so fast there, big fella.”
Explains R, “The deteriorated deck railing and the failed GFI outlet are safety issues and it would be proper to ask the seller to fix these problems. There should be GFI outlets in the garage as they were code-required when the house was built – however, they were not required in the basement at that time. We can ask the seller to install the outlets in the basement, but he may say no, with some justification. We cannot just demand that a seller bring an older home properly constructed for its time up to current code and not expect resistance.”
“The loose kitchen cabinet hardware does not rise to the level of a “defect”, as defined by the contract. We can ask the seller to fix the hardware, but if he says no, we won’t be able to use that as a justification to walk from the contract. And I really hate to tell you this, but the foundation wall crack was known to you before you wrote the offer – according to the language of the inspection contingency you cannot claim it is as a defect unless the extent of the problem can be proven to be much greater than you reasonably believed it to be. Surely you remember, we talked about this. Another problem is that this issue may impact your financing contingency. Remember, your lender also has a copy of the Offer and the Real Estate Condition Report. As for the roof, let’s see what we can negotiate on that. We have two weeks time remaining to negotiate with the seller before we have to deliver the notice of defects.”
B turns out to be the reasonable sort after all, so B and R prepare an amendment to the purchase contract that states that the seller agrees to: either install a new roof on the house before closing or escrow $5,000 to be used to pay for a new roof after closing; replace the failed GFI outlet and retrofit GFCI devices into the garage and basement; repair the deck railing, and authorizes a follow-up inspection by a qualified expert of the foundation wall if the bank requires it as a condition to providing financing.
S receives the amendment as presented by his agent and says, “Forget this guy! He knows he is not buying a new home! I am not paying for a new roof! I factored in the age of the roof into the price I accepted!”
S’s agent, “V” by name, as professional, charming, and sophisticated as he is handsome, says, “Take a chill pill, “S”, we have something here that we can work with. Let’s not throw the deal over yet – this is the fun part --negotiating.”
V continues, “Let’s start with the stuff that shouldn’t be too controversial. I suggest that you agree to fix the railing – you remember, we talked about it, and for a few dollars you can replace the GFI outlet. I also think that it would be a good idea to put GFCI devices in the garage as they should have been originally installed. I further suggest spending the few dollars for the outlets in the basement as a gesture of good will. We should also agree to allow the follow-up inspection on the condition that the bank demands it – otherwise the deal may die due to lack of financing.”
“All these things are not going to cost you very much, but we will get estimates before proposing our own amendment. While we are at it, let’s also get an estimate for a new roof and then I will work up some net proceeds scenarios and then decide what we are going to do.”
Within one week S has estimates of about $450 to replace the deck railing and $200 to replace and retrofit the GFI outlets. The roof came in at $5400.
S and V respond to the buyer’s amendment with one of their own. Initially S remained adamant that he would not pay for a new roof, but eventually accepted that it was not in his best interests to lose this deal for a few thousand dollars. The new amendment, as delivered to R, proposed that the seller would replace the deck railing and provide GFCI devices in the garage and basement as well as replace the defective one. Furthermore, S would escrow $2,000 for a new roof that must be installed within one year of closing. S agreed to the follow-up foundation inspection, but only if it was required as a condition of financing.
Ever since B had presented his amendment he had been sorely tempted to go to his lender and point out the foundation crack and use this as a stratagem to get out of the contract if indeed there was something severely wrong with the foundation. His agent, R, got wind of this and two of them had a long talk about the wisdom of this approach. On R’s advice, B instead had another conversation with the home inspector, and this comforted B’s mind to some degree as the home inspector reiterated that the foundation appeared to be stable as that the crack didn’t weep moisture, was old, and didn’t appear to be growing. As it turned out, the bank didn’t make an issue of it either, and a follow-up inspection was never done.
B was now ready to accept the amendment as proposed by S except for the issue of the roof. He was feeling that if he was going to have to accept the foundation wall crack, he shouldn’t have to stand any of the cost of a new roof. B and his agent had a long talk about this, also. R pointed out that B and the seller were only $3,000 apart at this point. R also knows from conversations with V that a new roof will cost about $5400. R tells B, “I was told long ago that splitting the difference while negotiating is for suckers, but I think that may be the approach to take in this circumstance. We may hold out for the $5,000 we first asked for, but then we may run the risk of the seller refusing and then running out of time to continue negotiations as we only have 4 days left to deliver a notice of defects if we can’t come to some sort of agreement. If we do deliver a notice of defects, the seller may elect not to cure, as is his right. Then you don’t get the house.”
Continued R, “But the seller doesn’t want this deal to die any more than we do. Maybe he would go for the 50/50 split.”
And so B and his agent prepare their second proposed amendment, which mirrored everything in the seller’s proposed amendment except that the seller would escrow $2,700 for a new roof instead of $2,000, and it provided for 2 days for S to accept. V had already anticipated this move and had prepared an estimated net proceeds sheet for S with these figures, and after waiting till almost the last moment, S accepted the buyer’s amendment. B and his agent then prepared and delivered a notice stating that the home inspection contingency was satisfied.
S fulfilled his contract requirements by seeing that the work that he agreed to was done in a good and workmanlike manner and delivered a notice to the buyer 4 days prior to closing detailing the work done. He and V further arranged for the escrow with the title company of the $2,700 to be used for roof replacement, a project completed 10 months post-closing.
And so ends our case study. Simple, right?
